-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ib7EMZ9yL1kYxNEpH43//Y+3DfWW3ZH1p+Lqdp963Nv9Kc51rW6eCWQAkO4KRgoQ A+Iv9lrj+3daT9Hftn2GJA== 0000898430-96-002027.txt : 19960629 0000898430-96-002027.hdr.sgml : 19960629 ACCESSION NUMBER: 0000898430-96-002027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCURY GENERAL CORP CENTRAL INDEX KEY: 0000064996 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 952211612 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03681 FILM NUMBER: 96566855 BUSINESS ADDRESS: STREET 1: 4484 WILSHIRE BOULEVARD CITY: LOS ANGELES STATE: CA ZIP: 90010 BUSINESS PHONE: 2139371060 MAIL ADDRESS: STREET 1: LOS ANGELES 10-Q 1 FORM 10-Q FOR PERIOD ENDED MARCH 31, 1996 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1996 Commission File No. 0-3681 MERCURY GENERAL CORPORATION (Exact name of registrant as specified in its charter) California 95-221-1612 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 4484 Wilshire Boulevard, Los Angeles, California 90010 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (213) 937-1060 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____ ----- At May 13, 1996, the Registrant had issued and outstanding an aggregate of 27,475,675 shares of its Common Stock. PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT SHARE AMOUNTS A S S E T S
March 31, December 31, 1996 1995 ---------- ------------ Investments: Fixed maturities available for sale (amortized cost $764,585 in 1996 and $742,409 in 1995)................ $ 780,693 $ 779,783 Equity securities available for sale (cost $119,481 in 1996 and $113,478 in 1995)......................... 117,686 114,915 Short-term cash investments, at cost, which approxi- mates market.......................................... 41,318 28,496 ---------- ---------- Total investments................................ 939,697 923,194 Cash...................................................... 4,062 2,872 Receivables: Premiums receivable.................................... 63,097 58,902 Premium notes.......................................... 11,519 11,728 Accrued investment income.............................. 14,781 15,870 Other.................................................. 5,302 6,108 ---------- ---------- 94,699 92,608 Deferred policy acquisition costs......................... 35,455 33,809 Fixed assets, net......................................... 28,184 27,464 Other assets.............................................. 1,309 1,709 ---------- ---------- $1,103,406 $1,081,656 ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses........................ $ 261,804 $ 253,546 Unearned premiums.......................................... 178,550 168,404 Notes payable.............................................. 25,000 25,000 Loss drafts payable........................................ 22,464 20,071 Accounts payable and accrued expenses...................... 27,782 25,412 Current income taxes....................................... 5,650 388 Deferred income taxes...................................... 1,179 10,158 Other liabilities.......................................... 15,527 13,489 ---------- ---------- Total liabilities................................. 537,956 516,468 ---------- ---------- Shareholders' equity: Common stock without par value or stated value. Authorized 30,000,000 shares; issued and outstanding 27,466,475 shares in 1996 and 27,442,675 shares in 1995.................................................. 41,405 40,895 Net unrealized investment gains......................... 9,303 25,227 Unearned ESOP compensation.............................. (2,750) (3,084) Retained earnings....................................... 517,492 502,150 ---------- ---------- Total shareholders' equity........................ 565,450 565,188 ---------- ---------- Commitments and contingencies........................... $1,103,406 $1,081,656 ========== ==========
MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED MARCH 31, AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA
1996 1995 -------- -------- Revenues: Earned premiums 169,563 144,676 Net investment income 16,437 14,880 Premium finance fees 446 456 Net realized investment gains 203 602 Other 351 325 -------- -------- Total revenues 187,000 160,939 -------- -------- Expenses: Losses and loss adjustment expenses 117,418 102,617 Policy acquisition costs 35,833 30,119 Other operating expenses 5,858 5,237 Interest 471 517 -------- -------- Total expenses 159,580 138,490 -------- -------- Income before income taxes 27,420 22,449 Income taxes 5,510 3,949 -------- -------- Net income $ 21,910 $ 18,500 ======== ======== EARNINGS PER SHARE (average shares outstanding 27,359,034 in 1996 and 27,291,744 in 1995) $.80 $.68 ======== ======== Dividends declared per share $.24 $.20 ======== ========
MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED MARCH 31 AMOUNTS EXPRESSED IN THOUSANDS
1996 1995 ---------- --------- Cash flows from operating activities: Net income $ 21,910 $ 18,500 Adjustments to reconcile net income to net cash provided from operating activities: Increase in unpaid losses and loss adjustment expenses 8,258 1,075 Increase in unearned premiums 10,146 8,548 Decrease in premium notes receivable 209 27 Increase in premiums receivable (4,195) (4,474) Increase in deferred policy acquisition costs (1,646) (1,777) Increase in loss drafts payable 2,393 2,463 Increase in accrued income taxes, excluding deferred tax on change in unrealized gain 4,857 3,928 Increase in accounts payable and accrued expenses 2,370 1,524 Depreciation 881 622 Net realized investment gains (203) (602) Bond amortization (accretion), net (165) 137 Other, net 4,705 (1,234) --------- -------- Net cash provided from operating activities 49,520 28,737 Cash flows from investing activities: Fixed maturities available for sale: Purchases (58,288) (50,130) Sales 9,132 20,058 Calls or maturities 27,526 14,894 Equity securities available for sale: Purchases (104,735) (63,780) Sales 98,554 54,715 Decrease (increase) in short-term cash investments, net (12,822) 3,483 Purchase of fixed assets (1,638) (1,204) Sale of fixed assets 37 324 --------- -------- Net cash used in investing activities $ (42,234) $(21,640)
(Continued) MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1996 1995 -------- ------- Cash flows from financing activities: Dividends paid to shareholders $(6,568) $(5,483) Proceeds from stock options exercised 472 61 ------- ------- Net cash used in financing activities (6,096) (5,422) ------- ------- Net increase in cash 1,190 1,675 Cash: Beginning of the year 2,872 3,344 ------- ------- End of the year $ 4,062 $ 5,019 ======= ======= Supplemental disclosures of cash flow information: Interest paid during the period $ 533 $ 512 Income taxes paid during the period $ 550 $ 20
MERCURY GENERAL CORPORATION & SUBSIDIARIES NOTE TO THE CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The financial data included herein have been prepared by the Company, without audit. In the opinion of management, all adjustments of a normal recurring nature necessary to present fairly the Company's financial position at March 31, 1996 and the results of operations and cash flows for the periods presented have been made. This interim information should be read in conjunction with the financial statements and notes thereto included in the Company's latest annual report on Form 10-K. Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- Results of Operations - - --------------------- Premiums earned in the first quarter of 1996 increased 17.2% from the corresponding period in 1995. The increase reflects new business, aided by a print advertising program instituted in December 1995, and a continuing renewal rate approximating 93%. The loss ratio in the first quarter (loss and loss adjustment expenses related to premiums earned) was 69.2%, compared with 70.9% in 1995. The higher loss ratio in 1995 reflects in large part an increase in weather-related claims associated with heavy rainfall and severe flooding in California. The expense ratio (policy acquisition costs and other expenses related to premiums earned) was 24.6%, virtually unchanged from 24.5% in 1995. The combined ratio of losses and expenses (GAAP basis) was 93.8%, compared with 95.4% in 1995, resulting in an underwriting gain for the period of $10.5 million, compared with $6.7 million a year ago. Investment income in the quarter was $16.4 million, compared with $14.9 million in the 1995 first quarter. The after-tax yield on average investments of $910.3 million (fixed maturities at cost, equities at market) was 6.52%, compared with 6.93% on average investments of $781.7 million in the 1995 first quarter. The decrease in realized investment yields reflects the redemption of bonds acquired in earlier, higher interest rate environments, larger balances in lower yielding money market investments and a lower effective yield from equities. New investments in bonds and equities combined are currently being made at after-tax yields ranging from approximately 6.25% - 6.50%. Realized investment gains were $203,000 in the 1996 first quarter, compared with realized gains of $602,000 in 1995. The gains in both years were in part the result of income enhancing swaps of preferred stocks and the redemption of higher coupon bonds at a premium. 6 The income tax provision in the first quarter of $5.5 million represented an effective tax rate of 20.1%, compared with an effective rate of 17.6% in the 1995 first quarter. Net income in the quarter of $21.9 million, or $.80 per share, compares with $18.5 million, or $.68 per share, in 1995. Per share results are based on 27.4 million average shares in 1996 and 27.3 million shares in 1995. LIQUIDITY AND CAPITAL RESOURCES - - ------------------------------- Net cash provided from operating activities during the first quarter of 1996 was $49.5 million, while funds derived from the sale, call or maturity of investments was $135.2 million, of which approximately 73% was represented by the sale of equities. Fixed-maturity investments, at amortized cost, were increased by $22.2 million during the period. Equity investments, including perpetual preferred stocks, were increased by $6.0 million at cost, and short- term cash investments were increased by $12.8 million. The amortized cost of fixed-maturities available for sale which were sold or called during the period was $32.5 million. The market value of all investments (fixed-maturities and equities) held at market as "Available for Sale" exceeded amortized cost of $884.1 million at March 31, 1996 by $14.3 million. That unrealized gain, reflected in shareholders' equity net of applicable tax effects, was $9.3 million at March 31, 1996 compared with an unrealized gain of $25.2 million at December 31, 1995. The decrease in market values since December 31, 1995 reflects principally the increase in interest rates which occurred during the period. The Company's cash and short term investments totaled $45.4 million at March 31, 1996. Together with funds generated internally, such liquid assets are more than adequate to pay claims without the forced sale of investments. It has been the Company's policy not to invest in high yield or "junk" bonds. As the result of downgrades subsequent to purchase, approximately 2.3% of total bond holdings at March 31, 1996 were rated below investment grade. The average rating of the $677.5 million bond portfolio (at amortized cost) was A, while the average effective maturity, giving effect to anticipated early call, approximates 8.3 years. The modified duration of the bond portfolio approximates 7.0 years. Holdings are heavily weighted with relatively high coupon issues which are expected to be called prior to their maturity. Bond holdings are broadly diversified geographically, and, within the tax-exempt sector, consist largely of high coupon revenue issues, including housing bonds subject to sinking funds and special par calls, and other issues, many of which have been pre-refunded and escrowed with U.S. Treasuries. General obligation bonds of the large eastern cities have generally been avoided. The Company holds no direct obligations of Orange County, California, which has filed for protection under the bankruptcy laws. The Company does, however, hold $8.8 million principal amount of bonds issued by entities within Orange County, some of which may be affected by losses arising from participation in the Orange County investment pool. Exclusive of those bonds that have been either insured or pre-refunded with U.S. Treasuries, the Company's total holdings of issues affected by investments in the Orange County pool approximates $7.5 million based on market 7 value at March 31, 1996. The Company has reviewed those holdings and believes that it will incur no losses as a result of the Orange County bankruptcy filing. Holdings in the taxable sector consist principally of senior public utility issues. Fixed-maturity investments of $764.6 million (at cost) include $87.0 million of sinking fund preferreds, principally utility issues. Except for Company-occupied buildings, the Company has no direct investments in real estate and no holdings of mortgages secured by commercial real estate. Equity holdings of $117.7 million at market (cost $119.5 million), including perpetual preferred issues, are largely confined to the public utility and banking sectors and represent about 20.8% of total shareholders' equity. As of March 31, 1996, the Company had no commitments for capital expenditures. Industry and regulatory guidelines suggest that the ratio of a property and casualty insurer's annual net premiums written to statutory policyholders' surplus should not exceed 3.0 to 1. Based on the combined surplus of all of the licensed insurance subsidiaries of $488.3 million at March 31, 1996 and net written premiums for the twelve months ended on that date of $663.1 million, the ratio of writings to surplus was approximately 1.4 to 1. 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MERCURY GENERAL CORPORATION By: George Joseph ------------------------------------------ George Joseph Chairman and Chief Executive Officer By: Keith L. Parker ------------------------------------------ Keith L. Parker Chief Financial Officer 9 EX-27 2 FINANCIAL DATA SCHEDULE
7 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 780,693 0 0 117,686 0 0 939,697 4,062 0 35,455 1,103,406 261,804 178,550 0 0 25,000 0 0 41,405 524,045 1,103,406 169,563 16,437 203 351 117,418 35,833 5,858 27,420 5,510 21,910 0 0 0 21,910 .80 0 0 0 0 0 0 0 0
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